Gold hedging falls 4.5% in 2001, says study

Gold hedging fell 4.5% last year, as producers saw little premium from selling gold forward due in part to the low interest rate environment.

The global gold producer hedge book contracted by 147 tonnes, from 3,229 tonnes in 2000, significantly more than the 15-tonne decline the previous year, according to a study by Gold Fields Mineral Services (GFMS). Falling interest rates eroded the contango – where the gold future price is higher than its spot price – to the point where “almost no premium could be gained from selling gold forward in the short to medium term”, said GFMS, a widely used compiler of gold market statistics.

The firm said perceptions that the gold price would improve throughout 2001 meant producers wanted full exposure to the potential upside. “Miners therefore saw little reason to protect themselves against falling prices, as well as less opportunity to enhance their revenue by locking in a contango,” said GFMS.

Hester le Roux, a director at GFMS, added: “All indications are that the trend to lower hedging has continued into the first months of this year, and while short-term rates remain low and price prospects remain positive, we would expect to see another significant fall in the global hedge book in coming months.”

Gold hedging has been controversial since 1999, when Ghana’s Ashanti Goldfields suffered large losses by making major bets against a rise in gold prices.